Do tax rules apply when you use digital currency?

To answer this question, let us first look at what digital currency is. Digital currency is virtual money that can be used to buy and sell goods or services on the internet. An example of digital currency is the bitcoin. Bitcoins are not controlled by central banks or any country and can be traded anonymously. Bitcoins can be traded for traditional currency and can also be transferred from one person to another.

So, do tax rules apply when you use digital currency? YES! If you use digital currency to pay for goods or services, the rules for barter transactions apply. A barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal currency.

Digital currency can also be bought or sold like a commodity. Therefore, any resulting gains or losses could be taxable income or capital for the taxpayer.

Do you use digital currency and would like help with determining the resulting tax consequences? Contact KD today!